Financial Spring Cleaning

Financial Spring Cleaning

April 20, 2022

Ahh, we have passed the tax filing deadline; time to breathe a sigh of relief, forget financial paperwork, and enjoy spring. Or at least for a few minutes before you spring into cleaning mode. Now that your annual tax documents are laying around, it’s probably good to figure out what financial records you need to retain and what you can pitch.  If you are like most people, you are not really sure what you should keep and for how long. Here is what we think you should consider:

Federal Tax Documents

The IRS can audit your federal tax returns going back three years as a general rule. At the very least, keep your tax returns and supporting documents for three years. Supporting documentation includes the items you had to gather to complete your return; W-2s, 1099s, year-end statements from your investment accounts, and records supporting deductions and credits claimed. 

That said, there are a few reasons to store records for at least seven years or longer. The IRS says they can review more than just three years in these situations: 

  •  Claiming worthless securities or bad debt, underreporting gross income by 25%, or filing “fraudulent” returns can allow the IRS to go back further. 
  • Your social security payments are calculated based on the history of your earned income. Believe it or not, sometimes, the social security administration has incomplete or inaccurate records. Until you start collecting social security, proof of your earned income could prove valuable.  
  • Did you make a taxable gift or receive an inheritance? Forms 709, 8971, and 706s should all be kept in a permanent record.

Healthcare Documents

Health Savings Accounts (HSA)

For those who have the holy grail of savings accounts, the HSA offers terrific tax benefits. To take full advantage, you should save all your medical receipts from when you opened the HSA. Don’t forget that HSAs can be used to pay qualified medical expenses 100% tax-free. 

There is no time limit between when you incur the qualified expense and when you withdraw the corresponding amount from your HSA.


Medicare sends a Medical Summary Notice in the mail every three months for services covered by Medicare Part A and Part B. This summary notice lists out the benefits and supplies billed to Medicare for your care. We suggest you keep your summary notices for 1-3 years. At the very least, do not destroy them until Medicare and any supplemental insurance have paid for those services. 

If you are eligible for Medicare yet are still working and have creditable coverage, it is crucial you retain the annual notice of creditable coverage. Creditable coverage is defined as health insurance that meets or exceeds what Medicare Covers. If you have the creditable coverage, you can delay signing up for Medicare without penalty. You only have eight months after you lose creditable coverage to sign up for Medicare; otherwise, you face penalties and late fees.

Asset and Debt Related Documents

Investment Accounts or Bank Accounts

If you own investments purchased before 2012, documentation is a bit more complicated, and the cost basis record retention falls on you for taxable accounts. Fortunately, most custodians will allow you to update cost basis records for assets that do not retain historical information, making it easier for you. Records on assets purchased after 2012 are the custodian’s responsibility and are automatically reported to you and the IRS in annual reporting.

Retirement Accounts

Details surrounding retirement account contributions and withdraws dictate federal taxation. Pay special attention to two separate tax documents.

By May 31st, the custodian will supply Form 5498 to the IRS and will provide you with a subsequent copy for your records. This form shows what you have contributed to your retirement account. It comes out after you file your taxes because you can contribute until your tax filing deadline. Therefore, you have already marked your contribution on your taxes, and you will not file this report with your tax return, but you should retain it for your records.

While not as common, non-deductible tax contributions to retirement plans also generate special reporting on Form 8606. It is important to keep this documentation for the life of the retirement account. It will be required to calculate the tax basis for future withdrawals accurately.

Retention and Disposal

Cleaning up the piles of old paperwork brings good feelings of accomplishment. Whether you choose to store your essential documents in paper or electronic versions, consider options that will be well organized and easily accessible for the long term. Since many of these items are important, don’t forget to protect them from damage or theft. 

On the same note, don’t just pitch unneeded documents in your weekly garbage. Most of the papers we have been talking about contain personal information which could easily expose you to identity theft. Your best option is to shred any unnecessary documentation containing sensitive information.  If you don’t have a shredder, the weather is still perfect for a night-time bonfire.  

This material is provided as a courtesy and for educational purposes only. Investing involves risk including loss of principal.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. This article contains links to articles or other information that may be contained on a third-party website.  River City Wealth Management is not responsible for and does not control, adopt, or endorse any content contained on any third-party website. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.